What Should I Do About Blockfi Tax Documents for Crypto Earnings?

Cryptocurrency has become an increasingly popular investment, and with it comes the responsibility of reporting earnings for tax purposes. For those using platforms like Blockfi, navigating tax documentation is essential. As tax season approaches, ensuring all crypto-related income is accurately reported is critical to avoid potential issues with tax authorities.

Tax Forms from Blockfi

When dealing with cryptocurrency investments on platforms like Blockfi, understanding the tax forms involved is vital. These forms provide a record of your earnings and transactions, necessary for accurate tax reporting. Blockfi typically issues several types of tax documents, each capturing different aspects of your crypto activities.

1099-B

Form 1099-B reports proceeds from the sale or exchange of securities, including digital assets. It details gross proceeds and, when available, the cost basis needed to calculate capital gains or losses. Short-term gains are taxed at ordinary income rates, while long-term gains qualify for reduced rates. Cross-checking the details on the 1099-B with your records is key to avoiding inaccuracies, as discrepancies can lead to penalties. The IRS’s growing focus on crypto compliance highlights the importance of precise reporting.

1099-MISC

Form 1099-MISC reports miscellaneous income, such as bonuses or referral rewards from Blockfi. While the threshold for receiving this form is typically $600, all taxable earnings must still be declared. Correct categorization on your tax return is critical, as it affects your taxable income and applicable tax rate. Maintaining detailed records of all crypto-related earnings ensures compliance and reduces the risk of penalties.

1099-INT

Form 1099-INT captures interest income, including earnings from crypto deposits or lending on Blockfi. This income must be reported as part of your taxable earnings and is taxed at ordinary income rates. Taxpayers should confirm that the amounts reported on the 1099-INT align with their records. Even if a 1099-INT is not received, any earned interest is still reportable. Thorough documentation helps mitigate the risk of audits.

Reporting Earnings from Crypto Lending

Crypto lending, a popular way to earn passive income on platforms like Blockfi, requires careful attention for tax compliance. It involves depositing digital assets into a platform that lends them to borrowers, with lenders receiving interest payments, often in cryptocurrency. These earnings are taxable and must be reported.

Interest earned from crypto lending is taxed at ordinary income rates, which vary based on overall taxable income. Accurate record-keeping is essential for reporting these earnings. Investors should document all transactions, including the type and amount of cryptocurrency lent, the interest rate, and the lending period. Crypto tax software can simplify tracking and ensure accurate reporting.

Reconciling Transactions Across Multiple Exchanges

Reconciling transactions across multiple exchanges can be challenging for investors engaged in digital asset trading. Using several platforms for arbitrage opportunities or specific trading pairs complicates tracking and reporting. Each exchange has different reporting tools, making comprehensive record-keeping essential.

The 2024 IRS guidelines emphasize the importance of reconciling all transactions. Discrepancies can result from varying transaction fees, exchange rates, or time zones. Specialized cryptocurrency tax software can aggregate data from multiple exchanges, automate imports, and calculate gains or losses using consistent accounting methods like First-In-First-Out (FIFO) or Last-In-First-Out (LIFO).

Trades on international platforms may trigger additional reporting requirements under the Foreign Account Tax Compliance Act (FATCA). U.S. taxpayers must report foreign financial assets, including those on international crypto exchanges, if they exceed specified thresholds. Noncompliance can lead to significant penalties.

Reporting Gains or Losses

Accurately reporting gains or losses is a cornerstone of tax compliance for cryptocurrency investments. The IRS treats cryptocurrencies as property, meaning each transaction is a taxable event. Calculating gains or losses requires determining the difference between the asset’s cost basis and its fair market value at the time of the transaction.

Investors must distinguish between short-term and long-term holdings. Short-term gains, from assets held for one year or less, are taxed at ordinary income rates. Long-term gains, from assets held longer than a year, benefit from lower tax rates, typically 15% to 20%. Accounting methods like FIFO or Specific Identification influence calculated gains or losses. Investors should also monitor potential changes to wash sale rules, which currently do not apply to cryptocurrency but are under scrutiny.

What to Do If Forms Are Incorrect or Missing

Errors or missing tax forms from Blockfi can complicate reporting. Promptly addressing these issues is necessary to ensure compliance and avoid penalties. Discrepancies between your records and Blockfi’s forms can raise red flags with the IRS.

If a tax document contains errors, such as incorrect amounts on a 1099-B, 1099-MISC, or 1099-INT, contact Blockfi’s customer support. Provide documentation, such as transaction records and account statements, to support your claim. Blockfi may issue a corrected form, labeled as a “Corrected 1099.” Wait for this updated form before filing your taxes.

If a form is missing, such as not receiving a 1099 despite meeting reporting thresholds, report the income based on your records. The IRS requires taxpayers to declare all taxable income, even without a third-party form. Crypto tax software can help reconstruct income and transaction data. If Blockfi cannot resolve the issue, consult a tax professional to ensure accurate filing. Filing Form 4852, a substitute for a missing or incorrect 1099, may be an option but should be a last resort.